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Elite Quarterly Overview - Dec 2003
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Wednesday, 28 January 2004
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General Market Analysis
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After three negative years for equities, 2003 finally delivered what equity investors had been wishing for – positive returns. In fact, investors received huge gains, with the MSCI World index of global equities returning 30.81% over 2003 in USD terms, better than the 22% (1998) and 23% (1999) in the two years before the bursting of the technology bubble in 2000. The year’s gains were even more impressive after a poor first quarter of the year in which the MSCI World fell by 5.5%. Since then, however, markets have risen consistently, posting 9 consecutive positive months.
The final quarter of 2003 saw strong gains across all major equity indices – Nikkei 225 +4.48%, FTSE All Share +8.86%, S&P 500 +11.64%, CAC 40 +13.49% and the DAX 30 posting a Q4 2003 gain of 21.75%. The capture of Saddam Hussein was cited as one of the contributing factors for the markets rising, as this removed an element of uncertainty from investors.
The US Federal Reserve again left interest rates unchanged, for the sixth month in succession and indicated that there were no imminent plans to change the level of interest rates which remain at a 45-year low. Industrial production was up during the quarter, providing the economy with some good news. Figures released for November pointed to the largest gain in 4 years as manufacturing companies boosted production to keep up with increasing sales.
UK interest rates ended the final quarter of 2003 a quarter point higher than they began it. Rates were raised from 3.50% to 3.75% by the Bank of England in an attempt to keep a tight lid on inflation. Figures released for November indicated a slightly lower inflation rate than was expected. Gordon Brown, UK Chancellor, in his pre-budget report cut his economic growth predictions and then went on to announce an increase in government borrowing. Despite reducing his growth forecast he did remain bullish over prospects for the UK and did go on to say that Britain was in a much stronger position than some other countries as we enter 2004. He cited the 28-year low in unemployment, currently at 3%, as one of the reasons that Britain’s economy was well placed.
The German DAX was the biggest equity market mover over the quarter, supported by positive signs emerging from the German economy. A German investor confidence index carried out by the ZEW Centre for European Economic Research rose in December to its highest reading since June 2000. It estimates that the financial analysts’ optimistic expectations were supported by fundamental factors such as the strong increase in incoming orders in Germany and the robust US economy. German business confidence was also up in the final quarter whilst in France industrial production rose at the fastest pace since August 2001, according to figures released for October. The European Central Bank raised its inflation forecast for 2004, to just under 2%, based on an export-led recovery, higher oil prices and government plans to increase some taxes.
The Japanese economy has struggled during 2003, not least because of the rising strength of the Yen against the USdollar. Over the year Japan spent Y20,000bn ($187bn) on foreign currency intervention. The finance ministry had earlier in the year tried to prevent the yen from going above Y110 against the dollar, although with current levels closer to Y105, this appears to be the new threshold. A stronger yen makes Japanese exports more expensive and therefore would be more harmful to the Japanese economy which relies very heavily on the ability of its companies to export goods worldwide.
The US dollar has endured a tough quarter on the currency markets, rounding off a poor year against most major currencies. The Japanese yen gained 10.79% over the year, whilst sterling was up 10.92% and the euro gained 20.04%. The South African rand managed to gain over 28% against the dollar over 2003, making it the second best performing currency over the year behind the Australian dollar (+33.92%). The falls in the US dollar have been prompted by factors including widening US trade and current account deficits, low interest rates and the threat of terrorist attacks.
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Elite Quarterly Overview - Jun 2003
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Tuesday, 12 August 2003
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General Market Analysis
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The global economy has seen much encouragement this month, with the US and Japanese economies taking a turn for the better. The MSCI World continues to strengthen, gaining 1.56% over June, even reaching 907 in mid-June, its highest in 12 months. Following the outbreak of the Iraqi war, the index has recovered well from the lows of March, and has increased by more than 25% since then.
In the US, recovery for the nation's factories after war with Iraq is proving more difficult than initially forecast, as manufacturing contracted for the fourth consecutive month in June. Nonetheless, with a 19% drop in oil prices since mid-March, the lowest interest rates in 45 years, and a $350 billion package of federal tax cuts, many predict that the US economic growth in the second half of 2003 may be twice as strong as in the first. However, even with such a combination of stimulatory measures (arguably the most potent in 62 years), economists predict that the incentives will not spur enough hiring to lower unemployment, or pull Europe and Japan out of their current malaise.
Europe continues to struggle as the economies of Germany and Italy shrank during the first quarter of this year. The euro's 17% gain against the dollar over the past 12 months is pushing countries like Germany to the brink of recession, while causing European exports to fall in five out of the past seven months - Europe's economy has been stagnant for the past 6 months. Suffering from the impact of the war with Iraq and the crisis of SARS, Gucci Group announced that first-quarter profit had plunged a devastating 97%.
Economists predict that the European Central Bank (ECB) will trim interest rates by a quarter point by the end of September in an attempt to aid the growth of the economy of the dozen nations using the Euro, despite the fact that rates are already at their lowest in any Euro member country since at least 1948. Forecasts suggest the benchmark rate may eventually be cut to 1.75%, and the ECB has indicated that it has the capacity to reduce borrowing costs further as the Euro's appreciation and the faltering European economy push down inflation. However, doubts about whether the cuts of the past 7 months will be enough to save the economy are growing rapidly across the Euro nations.
The ECB remains 'confident that over the next few months the European economy will pick up'. However, Hans-Joachim Hass, chief economist of the BDI industry group, which represents almost 100,000 companies, said that he 'doesn't really see a turning point in the economy yet'. He also added that the economy has "reached the bottom" and that it "will remain there for a while." This will likely affect the labour market, as the unemployment rate in the Euro nations will probably rise to 8.9% this quarter, from 8.8% in May. All eyes are once again on the US economy, which will be playing the main role in global growth.
Signs of recovery are showing in Japan's economy this month, as the BoJ said in Tokyo that its quarterly Tankan survey showed sentiment rose from the expected minus 10 in March to minus 5, the highest Tankan reading since March 2001. Executives at Japan's large manufacturers were the least pessimistic in 2 years this month as stock indices rose from 20-year lows, indicating recession in the economy can yet be avoided. A negative number, however, still reflects that pessimists outnumber optimists.
An encouraging 14% rise in the Nikkei 225 index in the second quarter has helped large companies such as Mazda increase overall Japanese business investment by 4.9% in the 12 months to March 31, compared to the fall of 0.8% that was forecast. The Nikkei closed at 9278.49 at the end of June, the highest since September 30 2002, while the Yen rose to 119.88 per dollar, staying above the recent artificial floor of 115. Concern that SARS would deter Asian demand for Japanese products, such as cell phones and cars, was eased after the World Health Organization (WHO) lifted travel advisories for Singapore, Hong Kong and Beijing in May and June.
Meanwhile in currency markets, the euro's winning streak against the dollar reversed in June, when it dropped by 2.32%, its first depreciation since March. The South African rand, on the other hand, recovered from its decline in May, and regained 7.74% against the dollar.
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Elite Quarterly Overview - Sep 2002
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Tuesday, 12 November 2002
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General Market Analysis
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The hiatus observed in equity markets during August did not, as was hoped, herald the bottom of the markets, and further falls were seen in September. The MSCI World Index was down 11.13% over the month (-18.69% for the quarter), with most major equity indices seeing similar falls. It seems that the longer international discussion on war between the US and Iraq is protracted, the more nervous investors become, and the less impetus seems needed to spark further sentiment-driven selling. Proof, if it were needed, of the irrational mood dominating markets, came in the spectre of 9/11. Most indices, including the S&P 500, the Dow, the FTSE 100, the German DAX, and the MSCI World, rallied in the early part of the month, peaking around the 11th, before an indifferent report in the US Beige Book caused markets to trail off towards the month-end. The announcement of OPEC on oil-production quotas did little to ease market tension over the situation in the Middle East, specifying no change in production. As has been the trend recently, bonds improved where equities lost out, with the JP Morgan Global Traded Index up 1.18%, and US Traded Index gaining 2.77% on the month.
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Elite Monthly Overview - Aug 2002
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Tuesday, 17 September 2002
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General Market Analysis
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Global Equities halted the major slides from the previous two months by remaining flat in August. June and July had seen falls in the MSCI World Index of 6.2% and 8.5% respectively, so the index ending the month unchanged on a month earlier definitely leaves momentum in an upward direction. The impact of CEOs having to swear on oath that their accounts were accurate on August 14th failed to impress equity markets. As equities remained directionless, bonds continued their strong performance year to date, with the JP Morgan Global Bond Index adding a further 1.5% in August.
The US economy, as with the global economy, has been giving out mixed signals of late, and that trend continued throughout August. GDP grew by 1.1% in the second quarter, less than half of what economists had expected according to a Commerce department report. US job growth stalled in July, giving further evidence that the economy's recovery may slow in the second half of the year. Unemployment remained at 5.9%, close to April's 6%, which was the highest since August 1994. Corporate profits also grew less than in the first quarter. On the other hand, productivity, an engine of the US economy's longest expansion in the 1990s, rose from April through to June for the fourth quarter in a row, double the pace economists had expected in the first three months of the year. Also US consumer confidence steadied in August, the University of Michigan survey showed, indicating that consumer spending probably will support the economy's recovery. All this led the Fed to leave interest rates at a 41-year low of 1.75% and indicated the US economy's recovery from recession is less assured than it was just a few months ago. The Dow Jones edged downwards on the month whilst the wider market, the S&P 500, was up around 0.5%.
Generally more positive news emerged from the UK, however, the UK economy did grow less than expected in the second quarter of 2002, as manufacturers cut production. GDP rose 0.6%, down from the 0.9% pace estimated the previous month, according to the government. The consumer continued spending in the high street and UK house prices grew at the fastest annual pace in 13 years in August as the lowest borrowing costs in almost four decades prompted Britons to purchase. The Bank of England cut its forecast for growth and inflation, then once again left interest rates unchanged at 4%. The FTSE All Share Index traded marginally downwards over the month as equity investors remain cautious.
The MSCI Europe ex UK index gained over 0.6% in August with the German DAX index being a positive contributor (up 0.35%). German unemployment rose to a three-year high in July although European industrial production rose, as German manufacturers made up for a slump earlier in the quarter. Italian 2nd-Qtr GDP barely grew as manufacturing stalled and declining stock markets hurt consumer demand. Europe's fourth-largest economy expanded 0.2% in Q2, half the pace forecast by economists.
Japanese factory use, a measure of how much capacity manufacturers used, fell 1% in June as a slide in exports prompted manufacturers to trim production. Japan's economy grew slower than initially expected (0.5%) in Q2, the first growth in more than a year. It is believed that these results may increase pressure on Koizumi to break his promise to cut government spending in a bid to pull the world's second-biggest economy out of a 12-year economic slump. The Nikkei Index fell in August by c. 2.5%.
Brazil's currency, stocks and bonds rallied early in the month after the IMF announced it would lend the troubled country $30bn, briefly putting a lid on market fears that a leftist may be elected president in October. The Brazilian equity index continued these gains and was up over 6% during August. In South Africa, the resources sector rallied a little after efforts by government and mining groups, Anglo American and De Beers, to soothe market fears with a statement that they would work together. The JSE rose almost 5% on the month, in local currency terms.
On currency markets, the US dollar struggled against the euro and the Japanese yen. It lost ground (0.48% against the euro and 1.16% against the yen) over the month as concerns rose as to the pace of the economic recovery in the US. The dollar did however gain ground on Sterling (up 0.85%) as GDP growth proved lower than anticipated in the UK. The euro continued to rise against Sterling, up 1.3% in August taking the gain year to date to c.3.5%.
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Old Mutual Unit Trusts' News - 7 Aug 2002
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Monday, 12 August 2002
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General Market Analysis
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It is worthwhile to look back in history for clues when attempting to make sense of the current market action. History shows that the duration of a bear market is usually in proportion to the bull market that preceded it. US markets peaked around March 2000, ending the biggest and longest bull market seen in history. It began in the early 1990s, lasting almost 10 years, with US equities having achieving on average about 400% in gains from start to end. Since that peak, equity markets (and shareholders) have seen more then $7 trillion of wealth erased.
The extended weakness in stockmarkets has resulted in some market commentators calling for a double dip in the US economy. The US economy has shed near 2 million jobs in the last 18 months, and some analysts believe this trend could continue if consumer demand declines. The weaker dollar is however expected to help exporters, and encourage manufacturing, a sector that has been particularly hard hit during the slowdown.
The question mark around the accounting practices of corporate America makes it difficult to confidently make a conclusion on the valuation of US markets. Depending on whom you rely on for your information, the S&P 500 is on a price-to-earnings multiple somewhere between 20 and 40. It is easier for analysts and fund mangers to make investment decision based on individual stocks. The uncertainty of accounting practices highlights the need for rigorous "bottom up" research and investors would do well to choose a fund manager with an established proprietary research team and track record.
So where to invest?
The local equity market has been moving lower in sympathy with global markets for the last few months, however it suffered a major sell-off in the last week. Resource counters in particular were hardest hit, as the market reacted to the proposed Mining Bill charter. The bourse heavyweights, Anglo-American, Angloplat, Billiton suffered sharp losses and dragged the broader index lower.
Financials have also come under pressure, as Banks and Insurance companies globally have come under pressure. However the earnings outlook for corporate South Africa looks much more certain, with local blue chips expected to earn around 15 - 20 percent this year. South African banks expect solid earnings for 2002 and are also expected to benefit from the consolidation in the industry. How much more can be written about how attractive financials look on a valuations basis?
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Old Mutual Unit Trusts' News - 31 July 2002
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Thursday, 1 August 2002
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General Market Analysis
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Investor decisions made difficult by extreme volatility
Since last week, Wall Street has posted two of the biggest daily points gains in fifteen years. How things can change in a week. The Dow Jones has rallied 1200 points in the last five trading days, after having fallen sharply for nine consecutive weeks. Last week marked the end of that losing streak, as the major US indices finished marginally in the black.
The next few weeks remain critical to the performance of stock portfolios and investors holding unit trusts. The extreme volatility makes investor decision making very difficult. Despite the sharp recovery of the last week, the major indices are still in negative territory for the year-to-date. The S&P 500 is still 20% lower than it began the year and the Nasdaq is over 30% lower.
On the accounting front, August 14, is being billed as the day of reckoning for corporate America. The new legislation requires company CEOs to swear under oath to the accuracy of their financial statements. Company CEOs have already begun signing off financial statements and the market will be focused on those companies that have not yet provided confirmation.
This week began with some positive economic data for the local market following last week's better than expected rise in producer prices. Both money supply and credit extension data for July came in lower than the previous month. All of these data releases are positive for the outlook for interest rates, with some commentators now expecting no further interest rate hikes in the current cycle. The consensus outlook remains for inflation to peak before year-end and then to decline into 2003.
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Quarterly market overview - July 2002
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Friday, 26 July 2002
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General Market Analysis
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Turbulent times hit the markets again in June with the news of more accounting scandals in the US having a big impact on investor confidence. All major equity market indices ended June lower, with the MSCI World Index down 6.2% for the month and 9.54% down for the quarter. Global bonds became the favoured asset class as the JP Morgan Global Bond Index rose 4.67% in June and 11.34% over Q2.
Global equities have now fallen for five out of the last six months, and this is despite positive economic news. The S&P 500 fell by over 13% and the Nasdaq by over 20% during the second quarter of 2002. The worry now is, in the aftermath of WorldCom and Enron scandals, how badly has investor sentiment been damaged? The accounts published by large companies used to be trusted by one and all, however, now investors are much more dubious about the figures they read. Confidence is the key and if consumers are anything to go by, the outlook is positive. Consumer spending growth in the US ran at around 3.5% during the first half of the year and is expected to rise further as the labour market is set to improve, while US GDP growth has been revised upwards to 6.1% for the first quarter of the year. The consensus view is that US economic growth will be good in 2002, rising further in 2003. One major factor is how long stockmarkets and economies are going to remain disconnected. Pessimism is massively discounted into the market. Whenever some negative news is released, however isolated, this leads to selling. Poor confidence could have led to a buyers 'strike' which is undermining the market further and allowing equities to remain disconnected from the economy.
The UK economy continues to be robust. The consumer has maintained the spending pattern, which has kept the UK clear of the downturn. The housing market remains key to consumer confidence and has been at the forefront of people's minds as prices continue to rise strongly. The fact that inflation is still so low has helped the Bank of England keep interest rates on hold throughout the quarter. The European Central Bank did likewise although European economies appear a little more fragile than the UK at present. German and French unemployment has been on the up and inflation in the Eurozone is higher than the UK. German inflation may be further threatened by the current round of pay negotiations orchestrated by large trade unions. It is not all bad news, however, as French GDP was up in the first quarter and German business confidence is rising. All this could not stem the retreat from equity markets as the UK, French and German indices lost 11%, 16% and 18% respectively over Q2 2002.
Although emerging markets have fared well year to date, June saw them lose ground as the impact of WorldCom reached far wider than just the developed markets. The MSCI Emerging Market Free Index fell heavily in June to leave it down 9% for the quarter. Japan had been driving Asia forward with positive returns for four consecutive months until poor June figures dragged performance into negative territory for the quarter.
While equity markets have been struggling, bond markets have seen a strong rally. Tensions in the Middle East, a perceived slowdown in the pace of recovery and the corporate scandals have seen bond markets rise consistently. The JP Morgan Global Traded Index helped by US Dollar weakness saw gains each month to leave it up over 11% for the quarter. Alan Greenspan, Chairman of the Federal Reserve in the US, has reiterated over the last three months that interest rates are likely to remain on hold for the foreseeable future as the economy recovers.
The US Dollar has been having a rough ride in recent months on the back of the corporate scandals and concerns over the pace of the economic recovery. The US Dollar has lost ground against all other major currencies year to date - finishing the quarter down 7% against Sterling and 12% lower against the Euro.
In Japan, the government has tried to weaken the currency as a weak Yen is key to boosting its exports. However the Dollar still fell 10% against the Yen and also fell 9% relative to the South African Rand over the second quarter of 2002.
Overall, it was a quarter of pessimism for equity investors but one cherished by bond investors. Concerns over the economy are still in place but given less emphasis as data suggests economies are gradually moving in the right direction. The key now is investor sentiment and how quickly it will return. Consumers are doing their best to support companies, now the time is right for markets to do the same.
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Market analysis - 18 July 2002
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Monday, 22 July 2002
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General Market Analysis
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The Bear loosens its grip on Wall Street
Wall Street began the week in spectacular fashion after eight consecutive weeks of declines for US equities (the major indices lost around 20% of their value). On Monday the Dow opened sharply lower and then fell even further. It recovered just as sharply towards the end of the day. The day marked an 800 point swing on the DOW - first falling 439 points, then recovering to finish just 45 points lower than opening.
Perhaps these wild swings are evidence that we are nearing a turning point? Whatever your view, one must be impressed with the resilience shown by a market that has been battered by a barrage of bad news to recover intraday from a 400 point plus deficit.
The other big story on Monday was the revival of the Euro which reached parity with the mighty greenback. It's been over two and a half years since they last crossed paths, heading in opposite directions.
This turn of events for the Euro has really been more a case of Dollar weakness - a result of the significantly large US trade deficit and accounting scandals that have shaken confidence on Wall Street.
The Euro has been on a rollercoaster ride since launch. The currency came into being in January 1999 at $1.18, falling to reach parity by year-end. It bottomed at $0.82 in October 2000, before the latest revival returned to parity with the dollar. The euro, like gold, has benefited from the uncertainty plaguing Wall Street and demonstrated a negative correlation to US equities.
In typical US fashion swift steps have been taken to address the concerns around the accounting practices of America Inc. The US Senate has just passed legislation aimed at reforming the accounting industry and imposing tougher penalties for chief executives found guilty of misrepresentation of financial performance. Company executives could face up to 10 years imprisonment for misleading shareholders.
The second quarter earnings season for the US industrial machine is now upon us. All eyes will be on Intel, IBM and Microsoft who all report this week and should provide a good indication for the rest of the sector. The consensus forecast for technology shares remains fairly bullish, with second quarter earnings expected to be 27% up year-on-year. Third quarter estimates are even more bullish, predicting a 75% surge from the third quarter 2001.
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Acadian Asset Management is added to OMAM(US)
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Thursday, 15 March 2001
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Media Comment
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Old Mutual Asset Manager (US) has announced that Boston- and Singapore-based international and global equity specialist Acadian Asset Management, Inc. has joined its aligned group of firms.
Acadian, founded in 1977 and currently managing approximately $4 billion in assets, last year became a part of Old Mutual plc (LSE: OML), the parent company of OMAM(US), through Old Mutual's acquisition of United Asset management Corporation.
With the addition of Acadian, OMAM(US), which began operating on January 1 this year, now includes seven firms managing approximatley $75 billion as of Decmber 31, 2000.
OMAM(US) firms cover a broad spectrum of complementary, non-overlapping asset classes and investment styles, and collectively provide a wide range of global product offerings.
OMAM(US) firms, which now include Acadian Asset Management, Inc., Analytic Investors, Barrow, Hanley, Mewhinney & Strauss, Inc., Clay Finlay Inc., Dwight Asset Management Company, NWQ Investment Management Company and Provident Investment Counsel, will seek ways to work together cooperatively and will work closely with all the Old Mutual's international asset management businesses, in particular with OMAM(US), OMAM(South Africa), and Pilgrim Baxter & Associates.
In choosing to join OMAM(US), the firms have agreed to modify their economic relationship with Old Mutual from a revenue-sharing to a profit-sharing structure, with each firm retaining its own identity, brand, investment philosophy and investment process, as well as responsibility for its client relationships.
(Source: Investing Abroad, Autumn 2001)
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OMAM gets top ranking in investment research
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Thursday, 15 March 2001
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Media Comment
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Old mutual Asset Managers (OMAM) has again been ranked as the top South African fund manager in investment research in the latest annual Reuters Global Emerging markets survey.
Reflecting the views of senior executives from more than 1200 of the major listed corporations in 27 countries the survey rated fund management groups' research capabilities and efficiency. This included issues such as the quality and depth of analysts' knowledge of the industry and the company, knowledge of the company's annual report and accounts; quality and depth of questions, feedback and preparation for meetings.
The survey also placed OMAM 2nd in the Europe, Middle East and Asia (EMEA) emerging market arena and 11th in the Global top 20 fund management group rankings.
(Source: Investing Abroad, Autumn 2001)
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Old Mutual International launches 3 new Funds
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Thursday, 15 March 2001
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Media Comment
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Old Mutual International (OMI) has added three new funds to its existing range of multi-manager unit trust and life funds. The complementary additions provide a new dimension that widens the offering. The new funds highlight the continued success in the multi-manager arena and the strong performance since launch of the current funds.
The multi-manager range now incorporates a balanced multi-asset class fund incorporating equities, bonds and cash.
The Elite USD Global Diversified Fund tilts investment towards the US while The Elite Sterling Global Diversified Fund is biased towards the UK. These balanced funds are benchmarked to composite indices based around, or similar to, those compiled by the Association of Private Client Managers and Stockbrokers in the UK.
These actively managed funds were launched in December and have been managed by the Gerrard Group (the largest private client investment manager in the UK) who manage the entire Elite Personal Portfolio Service.
The New Economic Theses Fund expands the Elite PPS into thematic investing. It aims to share in the growth of technology and the information economy within a global context. The fund's remit is wider than pure technology, allowing it to invest in more peripheral sectors of the economy which will reap long-term benefits from the advancement of technology.
The new funds complement Old Mutual International's extensive range of multi-manager funds.
(Source: Investing Abroad, Autumn 2001)
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OMI Reaches further into Asia
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Wednesday, 14 March 2001
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Media Comment
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Taiwanese financial group, Jih Sun, has entered into a joint venture with Nedcor Asia Ltd. to distribute Old Mutual's Nedcor Elite Personal Portfolio Service (subject to regulatory approval) in a move that will facilitate Jih Sun's first offshore unit trust multi-manager offering.
As manager and administrator of the investment product, Old Mutual appointed Nedcor Asia Ltd. last year as its representative for the Elite Portfolio Service.
In addition to distributing OMI's service in Hong Kong, Nedcor Asia Ltd. have been looking for suitable distribution partners in order to extend the distribution of its services in Asia.
(Source: Investing Abroad, Autumn 2001)
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